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Retiring Early, Retiring Late, Retiring Penniless

Surprising new studies on when, why and how Americans retire

By Richard Eisenberg

It’s not easy to surprise journalists like me who write about retirement.

We’re jaded by surveys that repeatedly document how little Americans are saving and how many older workers say they’ll never retire. (Excuse me, one just arrived from

But I always come away learning new and — yes — surprising things when I attend the annual Retirement Research Consortium in Washington, D.C. as I just did. It’s when the Michigan Retirement Research Center, National Bureau of Economic Research and Center for Retirement Research at Boston College invite scholars from colleges and think tanks to present their latest papers.

In this post, I’ll share findings from ones revealing why some Americans retire early, others retire late and some, sadly, end their lives nearly penniless — as well as the implications for workers, retirees and policymakers. (In future posts, I’ll discuss what a few other analysts I heard discovered.)

Why Some Retire Earlier Than They Planned To

Turns out, 41 percent of Americans working at age 58 wind up retiring earlier than they had planned. Why? Three analysts from the Center for Retirement Research at Boston College have the answer — well a partial answer.

After reviewing data from the government’s Health and Retirement Study from 1992 to 2012, Alicia Munnell, Geoffrey Sanzenbacher and Matthew Rutledge found that three “shocks” are the top reasons for unexpected early retirement: worker’s health, involuntary job losses and changes within the person’s family (especially his or her spouse’s retirement).

In other words, it’s usually not because they have, or anticipate having, more money than they thought they would or because of the spouse’s health.

“When people are making plans [about when they’ll retire], they don’t do a good job projecting how they’ll be feeling at a later age,” Sanzenbacher, a research economist, told me. “They underestimate how much their health will deteriorate.”

But the three reasons only account for 15 percent of all early retirements. The other 85 percent are due to many other reasons, including a dislike for their jobs; divorce; elderly parents needing care and a desire to spend time with grandkids. Some people, Sanzenbacher said, retire earlier than anticipated because they're bad at planning.

Implications: “The message to retire later has gotten out, but this [research] suggests there are barriers that go beyond planning,” said Sanzenbacher. “That should be in the back of the minds of policymakers.”

And, he added, the study “highlights the importance of keeping people healthy.”

The Fields Where People Retire Earlier

Sanzenbacher and his Boston College colleague Anek Belbase also investigated the types of jobs where people were more likely to retire early due to age-related declines in their abilities. You’d probably assume these are blue-collar ones with serious physical demands. That’s sometimes the case. But would you believe dentists, designers and pilots are among the most likely to retire early because of declines in their abilities (see the chart below)?

Retiring Early Retiring Later Retiring Penniless chart embed

Sanzenbacher and Belbase created an “age-related decline susceptibility index” and came up with two surprises: Many blue-collar workers don’t lose their abilities due to age and certain types of white-collar professionals do.

“A dentist is a good example, because fine movements are really important,” Sanzenbacher said. “If someone experiences a decline in those abilities, they’re not able to the job.”

Designers, too, require detail work, with nimble figures and sharp eyes. Pilots, Sanzenbacher said, sometimes need to retire early due to a falloff in their night vision, peripheral vision and depth perception.

Blue-collar workers with the most age-related declines in abilities, the researchers said, include cooks, textile operators and assemblers.

“We think white-collar workers can work forever; not all of them can,” he noted. The ones most able to are professionals like sales reps and college professors whose jobs rely on knowledge they’ve gained over their lifetimes.

These researchers didn’t, however, look into fields where people retire early because they’re simply burned out or bored.

Implications: “As we extend Social Security’s Full Retirement Age [once 65, it’ll be 67 for people currently age 45 or younger] and push people to work longer, some white-collar workers will have to think about whether they’ll be able to work as long as they want,” said Sanzenbacher.


Also, if you’re a self-employed worker whose abilities are likely to decline as you age, you have one more reason to save regularly and significantly for retirement.

Why Do Some Die Nearly Penniless?

“We spend a lot of time looking at how much people save because we’re concerned they may run out of resources. We haven’t spent a great deal of time looking at what happens to people as they get close to the end of life,” said MIT professor James Poterba in his RRC presentation.

That’s why he and professors Steven Venti and David Wise (both of Harvard) studied why people with less than $50,000 in their last year of life had so little. Had these retirees spent down too much of their savings? Or were they poor to begin with? The answer, they found, was generally the latter.

Using the Health and Retirement Study data, too, the scholars started by reviewing household balance sheets for people aged 51 to 61 in 1992 and age 70 and older in 1993. Then they followed these people for eight years to see how much they had in assets — financial assets and home equity — in the year before they died. The data didn’t include 401(k)s.

Roughly 15 percent of those who were 51 to 61 in 1992 had either no assets or negative assets (they had debt) prior to death; another 23 percent had less than $50,000 in assets. Of those who were 70 and older in 1993, 13 percent had zero or negative assets prior to death and another 25 percent had assets below $50,000.

In most cases, the year-before-death figures were very close to what these people had when the researchers first started tracking them. For instance, 13 percent of the younger group had no assets or negative assets at the study’s start.

These people weren’t spending their savings cavalierly; they had little or no savings to begin with.

“This suggests that a substantial number of the elderly reached the end of life with a very small financial or asset cushion against whatever expenditure they might encounter,” said Poterba. “Running down your assets is less likely to lead you into this.”

Also, he noted, “in most cases, folks with relatively low amounts of wealth also have modest amounts of income.”

Poterba said earlier studies have shown people tend to take out 3 to 4 percent of their savings each year in their 60s and that figure jumps in their 70s, because of the government’s required minimum distributions from traditional IRAs and retirement plans starting at age 70½.

“Quite a substantial group are not tapping their retirement plans until they hit the age they must take distributions,” Poterba said.

Bear in mind, though, that retirees now in their 70s and older didn’t have 401(k)-type plans for most of their careers; so their retirement-plan income is mostly from pensions with fixed monthly payouts. That won't be the case for retirees going forward.

Implication: Social Security benefits are critically important for the nation’s poorest retirees.

“What’s clear is that for the group of individuals with low levels of assets, the level of Social Security benefits is really determining their standard of living,” said Poterba.

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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